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How Eastman Chemical’s Valuation Stands Compared to Peers

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Dec. 21 2017, Updated 7:31 a.m. ET

Eastman Chemical’s forward PE

In this article, we’ll compare Eastman Chemical’s (EMN) valuations with peer LyondellBasell’s (LYB) valuations. As of December 19, 2017, EMN’s one-year forward price-to-earnings multiple stood at 11.30x, while LyondellBasell’s one-year forward price-to-earnings multiple stood at 11.60x.

The forward price-to-earnings valuation method takes the estimated future earnings into account. This method of valuation helps investors to compare two or more companies operating in the same industry and judge which company is overvalued and which company is undervalued.

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Eastman’s valuation

EMN posted three quarters of strong earnings growth in 2017, and EMN expects the trend to continue in 4Q17 as well. EMN’s organic growth driven by the demand for its Tritan and EMN’s ability to pass on the increasing raw material cost is expected to drive the revenue up going forward. Also, EMN’s expansion of its performance films capacity is expected to drive growth. As a result, analysts are expecting EMN’s fiscal 2018 earnings per share to be at $8.16, which implies growth of 15.8% over the expected fiscal 2017 earnings per share.

On the other hand, analysts expect LYB’s fiscal 2018 earnings per share to fall over the expected fiscal 2017 earnings probably due to uncertainty over crude oil prices, increasing input costs, and turn-around issues. Thus it seems LYB’s valuation is higher compared to EMN’s despite a decline in LYB’s projected fiscal 2018 earnings.

Investors looking to hold EMN indirectly can invest in the PowerShares DWA Basic Materials Momentum Portfolio (PYZ), which invests 2.4% of its portfolio in EMN. The other holdings of the fund include FMC (FMC) and Chemours (CC), which have weights of 5.2% and 5.1%, respectively, as of December 19, 2017.

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